Thursday, April 29, 2010

Neighborhoods or communities?

From the dustjacket of In the Neighborhood: The Search for Community on an American Street, One Sleepover at a Time:
Peter Lovenheim has lived on the same street in suburban Rochesters, NY, most of his life. But it is after a brutal murder suicide rocked the community that he was struck by a fact of modern life in the comfortable enclase: No one really knows anyone.
It's the old worry.  When (most) people have the means, they opt for independence and privacy.  And there are trade-offs involved.  And most people romanticize communal life. That having been said, Lovenheim's description of his adventures when he actually offers to meet and engage his neighbors (offering to spend a night) beats most of the standard fare on the topic.     

Wednesday, April 28, 2010

Half is enough

This study finds that calorie postings at Starbucks have only minor effect.  Not exactly the ammunition that some had hoped for.  But recall the famous John Wanamaker quote:  "Half the money I spend on advertising is wasted; the trouble is I don't know which half."  Consumers make choices on the basis of complex assessments of the package offered them.  This includes local ambiance, subjective associations with the brand and all sorts of things, only some (half?) of which are knowable.  Sellers of the world (and now nannies of the world) would love it if their odds were better.  But I hope that it remains as mysterious as Wanamaker said.

Tuesday, April 27, 2010

The smart set

I have no idea which (if any) trading rules were broken when traders at Goldman Sachs did not reveal who was short on a deal that Deutsche Bank and others chose to go long on.  I imagine that Goldman's customers have the option to sue and/or take their business elsewhere.

Politicians cannot be expected to miss an opportunity to grandstand.  But listening to the news suggests just how bad things are.  Making a profit, speculating, diversifying (in this case going short as well as long on various mortgage-backed securities) -- and profiting on that.  Can you imagine?  All these perfectly normal actions are subject to hand wringing and worse. Last night's Jim Lehrer News interview (Ray Suarez talking to Louise Story) is a case in point.

And these are the high-brow TV news.  Can someone from that perch please explain to the audience that firms are supposed to be profit-seeking, that everyone on Earth speculates, that the shorts are an essential part of the market, that firms will diversify their portfolios.  And that all of these actions are socially beneficial?  You can bet that all of the smart set encountered Econ 101 at some time in their lives.  What happened?

Sunday, April 25, 2010

Don't double-down on the failures

Economist Robert Frank argues for progressive taxation in today's NY Times by noting that market pay scales are progressive anyway.  The most productive workers on any team earn slightly less than the value of their marginal productivity and the least productive earn slightly more than their productivity.

In his discussion, Frank invokes the anti-progressivity libertarian straw man. But one can cheer for a more progressive distribution of incomes without signing on to existing federal programs.  One could suggest that real school reforms (for example, not killing programs like Washington DC's voucher program) would go a lot further in that direction than the current tax code.

But that begs the question of the role of the state in impacting the distribution of well-offness.  There are many levels of government, many taxes and many expenditure programs.  What is their net effect in terms of redistribution?  To my knowledge, the big question has never been rigorously answered. 

What do we know?  In the U.S., the role of the state has grown steadily over the last 80 years, but the chorus of complaints is that "inequity" is now greater than ever.  As with all failed programs, the chorus responds by insisting we have not really bought enough of it.   (Unhappy with how program X performs?  Increase its budget.)  This is not how the real world works.  We typically (still) downsize or discard the failures.

Friday, April 23, 2010


Mention slavery to most Americans and they reflect on the sad experience in U.S. history.  Most were never taught that slavery was until very recently a universal insititution.  And most slaves that made it from Africa to the western hemispehere were first enslaved by other Africans.  This is why it is a good thing that Henry Louis Gates sets the record straight in this NY Times op-ed. 

Not all of history is mainstream history and not all mainstream history gets taught in the schools.  With any luck, mention slavery to a school kid some years from now and her or she will reflect on a very sad but universal part of human history.  Moral progress, where we find it, must be acknowledged and celebrated.

Wednesday, April 21, 2010

How did he know?

Today's WSJ includes "Debt 'Masking' Under Fire ... SEC Considers New Rules to Deter Banks From Dressing Up Books ..." and "Senators Seek Cash as They Mull Rules ... Both Parties Have Held Dozens of Fund Raisers on Wall Street While Fashioning New Regulations for Financial Markets."

But yesterday, this WSJ op-ed by Gerald O'Driscoll noted:

Why has this happened? Financial services regulators failed to enforce laws and regulations against fraud. Bernie Madoff is the paradigmatic case and the Securities and Exchange Commission the paradigmatic failed regulator. Fraud is famously difficult to uncover, but as we now know, not Madoff's. The SEC chose to ignore the evidence brought to its attention. Banking regulators allowed a kind of mortgage dubbed "liar loans" to flourish. And so on.

We have now learned of the creative way Lehman Brothers hid its leverage (how much money it was borrowing) by the use of a Repo 105. The Repo 105 meant Lehman temporarily swapped assets (such as bonds) for cash. A Repo, or repurchasing agreement, is a way to borrow money. But an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings, according to a report by the court-appointed Lehman bankruptcy examiner, a former federal prosecutor, last month.

Are we to believe that regulators were unaware? Last week Goldman Sachs was accused in a civil fraud suit of deceiving many clients for the benefit of another, hedge-fund operator John Paulson.

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing.
How did he know?


I could not ignore this report on what the regulators were actually doing.  Yes, and if we only had more of these guys, things will get much better.

Sunday, April 18, 2010

Spending cuts not in our future

Writing in today's NY Times, Tyler Cowen cites progress in other countries (including Canada) towards cutting government spending.  If others can do it, so can we.  Perhaps. 

It's only been a few weeks since CBO reported that we can insure millions more and cut the deficit.  Most people seemed to believe it.  And it's only been a few days since the President took credit for being a tax cutter.  If you believe neither claim, do you expect we can follow Canada's lead?  Besides, debt can be slashed by inflating the dollar.  And we have taken some steps in that direction.

Britain had to teeter on the brink before Thatcher could start a serious reversal.  Reagen found a rare political seam when real tax reform could become law in 1986.  Neither condition is likely in our case.  After all, serious people say (who knows what they think) that health reform saves money and Obama is a tax cutter.

Thursday, April 15, 2010

Trembling on the brink

Just the other day, the NY Times reported this re the goings on in Bolinas, CA:

BOLINAS, Calif. — Marc Dwaileebe would like to build a house for his family on land he owns in this bucolic town just 20 miles north of San Francisco. But he cannot hook up to the water main that runs right past his property unless he has a water meter. And a water meter, in Bolinas, could cost more than $300,000.
The Bolinas people are serious.  According to the story, the price cited comes from a recent auction of the meter . Call it cap-and-trade, but with a very low cap.  It is transparent and it does beat allocation via political "pull".

On a related theme, today's WSJ includes "Reducing Emissions, and a Guilty Conscience".  The story cites and compares five vendors that currently sell carbon-footprint-offset dispensations (some have likened these to indulgences once upon a time made available for all the wrong reasons by Roman Catholic church officials -- and really getting Martin Luther upset).  The story mentions that looking for offsets verified by a third party is a good idea. It's early in the game and branding and trust relationships will form if these markets take off.

What makes both stories appealing is that they include glimmers of alternatives to the way most people still think about environment -- that it is only about one-size-fits-all standards.  The people at PERC have been telling similar stories for many years.   Are we trembling on the brink of now seeing it go "mainstream"?

Monday, April 12, 2010


Thie country's biggest problem is probably the public schools.  Many of us had a pretty good idea that competition and choice are the obvious fix.  Diane Ravitch (interviewed by Russ Roberts here) has taken a hard look and is not so sure. 

The most depressing thing about the interview is that there is so little good news.  The Catholic schools (which Ravitch admires) are in decline. The charter schools (which she also has good things to say about) offer a mixed record.  No Child Left Behind testing has (in her words) institutionalized fraud as all teaching and prep are geared to one test.  And even the scores on reading and math (the only focus of NCLB) have gone nowhere.

What to do?  This is not my field and I have no idea.  The only question that remained after I listened to the interview is that competition if given enough time and scope could bring forth models that no one has yet considered.  The tests to date have been few and for just a few years.  Otherwise, Ravitch's findings (which she articulates compellingly) are very depressing.

Sunday, April 11, 2010

Fixes and failures

As transactions costs come down, we do more transacting.  Last week, experiencing great NY weather and walking around Manhattan with two of my favorite ladies, I was made aware of the SitOrSquat iPhone app.  Today's NY Times includes "Need a Free Parking Spot? For $5, He'll Find You One" (print version).  Here's how the other great need is addressed:
Standing outside 477 Amsterdam Avenue one morning last week, we posted a query to see what spots were available nearby. Nothing at that instant, but someone had informed StreetParkNYC that in 20 minutes he would be leaving a spot 0.15 miles away. Getting the exact address costs $5, which we clicked to pay. Then we headed off, to 177 West 88th Street.

Just as promised, at 10:30 a.m., a fellow named Josh Fein got in his 2009 Black Acura MDX and drove off. He got $3 in his StreetParkNYC account, and we got a spot until the next morning. We tried twice more, with similar results: nothing perfect or immediate, but something, eventually, in the neighborhood.
Not just markets in everything, but two more cases of tech and entrepreneurialism lending a hand where the Great Big City's policy makers had failed.

Friday, April 09, 2010

Another explanation for lower big-city crime

The textbook treatment of public goods leaves out a lot that goes on right before our eyes.  Where their benefits are focused on an identifiable space, many of these goods can be supplied by private means.  You cannot visit a major US downtown these days without encountering private law enforcement personnel, many of them financed by Business Improvemt Districts (BIDs).  This paper by Philip Cook and John MacDonald (which I had not seen until seeing it cited here in The Economist) makes the case that crime reduction via BIDs is cost-effective.

Measured crime is down in most US big cities and there are a variety of competing explanations.  Cook-MacDonald provide evidence that some of the credit goes to where few of the analysts have looked.  Also give credit to lawmakers that made BID creation legal. Yes, some coercion is involved.  If a super-majority of local businesses sign up, the others must join -- or move elsewhere.  But the crime-reduction benefits may also be cost-effective for the individual business.  

Thursday, April 08, 2010

Smart czars

Don't bite off more than you can chew.  That one makes the top 101 American-English proverbs and for good reason.  Witold Rybczynski describes city planners elevated to the growing Washington fraternity of czars.  And why not?  They deal in "smart plans." F.A. Hayek called attention to "fatal conceits".  He focused on the problems of socialism , but most grand plans (even "smart" ones) are subject to exactly the problems Hayek highlighted.

But perhaps it's a bigger phenomenon.  In some walks of life, defeats prompt retrenchment. ("Pivoting" in current discussions.)  But in other fields, frustrations with the smaller problems only whet the appetite for bigger ones.  In my city and state, officials cannot fix the potholes, so they focus on global warming.  Never mind that localities' impacts would be negligible absent the cooperation of, say, China.  The same folks cannot get the schools under their jurisdiction to adequately teach the basics so they focus on what students ingest at lunch and recess. 

And it seems to work.  We keep re-electing people of the same mind set.

Wednesday, April 07, 2010

Four little numbers

The internet is congestible, as are most networks.  Most U.S. roads and highways are managed on a first come-first served basis.  We even call some of them freeways.  Call it "road neutrality". 

My colleagues and I play with data from the 1990 and 2001 national surveys (NHTS).  All you need to know are four numbers:  Proportion of all person-trips that were nonwork trips during the AM peak in 1990 (Mondays-Thursday only, 6am-9am): 55%; proportion of all trips that were nonwork during the PM peak in 1990 (Mondays-Thursdays only, 4pm-7pm): 75%.  Corresponding proportions in 2001: 62% and 76%.

Backing off from "neutrality" and rationing by, say, willingness-to-pay might shift some of these trips to less congested periods (others might disappear or be consolidated or use alternate modes). 

There is no end of moaning about road and highway traffic.  But the next time you find yourself in a serious conversation on the merits and demerits of "net neutrality", think about these four numbers.

Sunday, April 04, 2010

Go back to first square

The message of Econ 101 is that price signals guide scarce resources to their highest and best uses.  The complexity of the task suggests that nothing but market prices and people free to respond to them can get the job done.  Substitute calculations are impossible.  And when and where there markets do not generate price signals, it is time to think hard about why that's that case and how signals (and trades) can come about where they are absent.  Emissions fees and tradable permits are often suggested.  But no one has yet figured out how these could be implemented without being politicized.

On top of all that, politicians and friends like to rush in with command-and-control.  Among the friends are those who are serious about green accounting.  The Econ 101 message, including the impossibility stuff, have not impressed them.  I recall that "energy accounting" was promoted 30+ years ago by many serious people.  This has morphed into "green accounting" and "carbon accounting" and perhaps other variants. Today's NY Times includes "How Green Is My iPad?"

But there are problems.  Choose or not choose an iPad based on this particular accounting?  My accountant might disagree.  And do I become a cost minimizer?

And aren't all resources scarce?  And doesn't that make the accounting much more complex than the op-ed suggests.  Go to first paragraph, above.

Thursday, April 01, 2010

Local news

A recent WSJ blog post by Phil Isso includes this interesting map (from NY Fed economists Jaison Abel and Richard Deitz) on the variation of housing boom and bust across the U.S.  We know that aggregation is a problem, but the economic news (and a mountain of analysis) is mainly about national aggregates.  The actual story is about regional differences.  High amenity places suffer from high demand and, as a consequence, tougher regulations.  Both forces explain high prices.  And high prices are most at risk when bubbles burst.  These simple thoughts pretty much explain the various colors of dots on the map.

Yes, there were policy mistakes compounded by errors of judgment all over the place.  But these were consequential because of the regional differences mentioned.  There is always more to the story than the cliches about actions in Washington DC and New York.